Pricey Central Subway contract leaves little room for future cost overruns 

click to enlarge Muni is expected to approve an $840 million contract for work on the Central Subway, between $90 million to $120 million more than it had planned to spend. The extra hit means the project’s budget has little room for future cost overruns. - MIKE KOOZMIN/THE S.F. EXAMINER
  • Mike Koozmin/The S.F. Examiner
  • Muni is expected to approve an $840 million contract for work on the Central Subway, between $90 million to $120 million more than it had planned to spend. The extra hit means the project’s budget has little room for future cost overruns.

Despite its deceptively low-key title, Muni Contract 1300 will cover construction of the vast majority of the agency’s Central Subway project, including three stations, the trackway and a train-control system.

It’s also about $100 million more expensive than originally anticipated.

That overrun will eat up about half of the contingency funds available for the project, which will extend the T-Third Street light-rail line 1.7 miles from South of Market to Chinatown.

The San Francisco Municipal Transportation Agency, which operates Muni, announced the return of contractors’ bids last week. Tutor Perini Corp., one of the country’s largest construction firms, submitted a low estimate of $840 million for the project, an expense that accounts for more than half of the Central Subway’s nearly $1.58 billion price tag.

The low bid was between $90 million to $120 million more than the agency’s engineers had projected for the work. Despite the significant increase, the agency is moving forward with approving the contract, and the extra costs will be covered by contingency funds.

“Even though the bid was about 12 percent higher than we anticipated, it still falls within our program budget,” said agency spokesman Paul Rose, attributing the cost increase to current market conditions.

The agency’s contingency budget for the project is about $200 million, which leaves about $100 million remaining for unexpected costs in the future, Rose said. And that does not include the $9.15 million the agency will spend to extract tunnel-boring equipment in North Beach. Any cost overruns on that project likely will come directly out of agency revenues.

Rose noted that Contract 1300 covers the last construction work up for approval. He said the agency remains confident that it can stay within the overall budget of the project, which has about six years of construction ahead.

Any cost overruns would likely be covered by Muni’s operating budget, which already suffers from a $70 million structural deficit.

Project critic Aaron Peskin, a former president of the Board of Supervisors, said Muni already has tapped too much of its Central Subway contingency budget.

“They should have very healthy reserves at this point, and that’s clearly not happening,” Peskin said. “I’m not a mathematician, but I can tell that it will be impossible for this project to come in underbudget. As a result, you’re gonna see a nice, shiny subway and Muni service crumbling throughout the rest of The City.”

Christopher Pong, a professor of civil engineering at San Francisco State University, said it’s common for major construction projects to be more expensive than anticipated, mostly because of higher standards for seismic design and public safety protocols.

He said that a $100 million overage within a $1.6 billion project could be contained without cost overruns.

“This can still be mitigated, but it’s going to have to take good scheduling and clear communication,” Pong said.

A similar issue recently arose regarding the $1.5 billion Transbay Transit Center project. A major construction contract came back $97 million over engineers’ estimates. The board in charge of the plan rejected the bid and split it up into several different smaller contracts in the hope of getting more competitive offers, according to project spokesman Adam Alberti.

Rose said the transit agency is not considering that course of action for the Central Subway.

wreisman@sfexaminer.com

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